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1990 SCC OnLine Gau 191 : (1991) 82 STC 89 : (1992) 1 Gau LR (NOC 16) 17

[In the High Court of Gauhati]

(Agartala Bench)
(BEFORE DR. B.P. SARAF AND H.K. SEMA, JJ.)

Projects and Services Centre and Another

Versus
State of Tripura and Others
C.R. No. 63 of 1987
Decided on November 5, 1990

Page: 90

The Judgment of the Court was delivered by

DR. B.P. SARAF, J.:— The petitioner is a partnership firm having its place of
business at Calcutta. The petitioner undertakes execution of contracts for supply,
erection and commissioning of electrical equipments in different States. On 7th
February, 1986, it entered into an agreement with the Executive Engineer, Micro Hydel
Investigation Division, Government of Tripura, for execution of the work of “supply,
erection and commissioning of 66/11 K.V. 6.3 MVA sub-station at Sonamura in the
State of Tripura”. The work also involved supply of materials required for the purpose.
The petitioner purchased the materials in different States outside the State of Tripura
or placed orders for supply of the same in Tripura for use in execution of the aforesaid
contract. The terms of the contract stipulated movement of the goods from such other
States to the State of Tripura. As the transactions in this case related to a period after
the coming into force of the Constitution (Forty-sixth Amendment) Act, 1982, which
enables the States

Page: 91

to levy tax on the transfer of property in goods involved in execution of works contract
and incorporation of section 3A in the Tripura Sales Tax Act, 1976, hereinafter “the
Tripura Act”, by the Tripura Sales Tax (Third Amendment) Act, 1984, which provides
for payment of tax on such transfers, there is no controversy as to whether the
transfer of property in execution of the aforesaid contract amounts to sale or not. The
undisputed position is that it amounts to sale and is exigible to tax. As the supplies of
materials in the instant case for use in execution of the contract were all made from
outside the State of Tripura, such supplies, according to the petitioner, amounted to
inter-State sales exigible to tax under the Central Act. There was no intra-State sale in
Tripura. The petitioner, therefore, did not register himself as a dealer under the Sales
Tax Act in Tripura. It was, however, registered as a dealer under the Central Sales Tax
Act, 1956, hereinafter “the Central Act”, in the State of West Bengal. It also filed its
returns of turnover under the Central Act with the authorities under the said Act in
West Bengal.
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2. On 9th May, 1987, the petitioner-firm received a notice of demand issued by the
Superintendent of Taxes, Agartala, under section 23 of the Tripura Sales Tax Act
demanding a sum of Rs. 3,79,832.68 by way of sales tax. An order of assessment was
also annexed. From the order of assessment, it could be gathered that tax had been
levied by the Superintendent of Taxes on the value of materials supplied by the
petitioner to the Executive Engineer, Tripura, from places outside the State of Tripura,
treating the same as “intra-State sales in Tripura”. It was done on the ground that the
actual transfer of property in the materials used in the contract took place in the State
of Tripura. In the said order of assessment, reference was also made to a notice under
section 6(1) of the Tripura Sales Tax Act issued by the Superintendent of Taxes asking
the petitioner-firm to show cause as to why it should not be registered as a dealer
under the said Act. The petitioner, however, denied the receipt of any such notice. As
the Superintendent of Taxes was of the opinion that the supplies made by the
petitioner during the period 3rd July, 1986 to 11th February, 1987, amounting to Rs.
37,98,326.86 were intra-State sales, he made the impugned assessment under
section 11(2) of the Tripura Act.
3. The petitioner has challenged the aforesaid order of assessment made under
section 11(1) of the Tripura Act on two grounds. The first ground is that the
assessment is wholly illegal and without jurisdiction as it has been passed without
initiating any proceeding for assessment under section 11(1) of the Tripura Sales Tax
Act by service of a valid notice calling for a return, which is a condition precedent for
such initiation. The second contention of the petitioner is that the assessment is not
tenable even on facts, inasmuch as there is no intra-State sale involved in the
transaction in

Page: 92

question. The submission, in other words, is that the Superintendent of Taxes acted
erroneously in holding that as the actual transfer of property in the materials took
place in the State of Tripura it was a intra-State sale, in complete disregard to the well
-settled principles for determining when a sale is deemed to take place in the course
of inter-State trade or commerce. We have carefully considered both the submissions
of the learned counsel for the petitioner. We have also heard the learned Government
Advocate. We may first take up the question as to whether there was a valid initiation
of proceedings under section 11(1) of the Tripura Act which could enable the
Superintendent of Taxes to make the impugned assessment. The material facts of this
case are not in dispute. The admitted position is that no notice contemplated by sub-
section (1) of section 11 of the Act was served on the petitioner requiring him to file
the return for the relevant period. The only notice that is claimed to have been issued
was a notice under subsection (1) of section 6 of the Tripura Act asking the petitioner
to apply for registration. Evidently it was not a notice under section 11(1) of the Act.
Under these circumstances, the question that arises for consideration is whether the
impugned assessment, admittedly made without service of a notice under section 11
(1) of the Tripura Sales Tax Act, is legal and valid.

4. For proper appreciation of this controversy it is necessary to refer to section 11 of

the Tripura Act which deals with the powers of the authorities to make assessment in
cases of evasion and escape. It reads:
“11. Assessment in cases of evasion and escape.—(1) If upon information which
has come into his possession the Commissioner is satisfied that any dealer has
been liable to pay tax under this Act in respect of any period and has nevertheless
failed to apply for registration and to make the return required of him or that sales
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of taxable goods has escaped assessment in any period or has been under-assessed
or assessed at a lower rate or any deduction has been wrongly made therefrom, the
Commissioner may, at any time within eight years of the end of the aforesaid
period, serve on the dealer a notice containing all or any of the requirements which
may be included in a notice under sub-section (2) of section 8, and may proceed to
assess the dealer in respect of such period and all subsequent periods, and the
provisions of this Act, so far as may be, shall apply accordingly as if the notice were
a notice issued under the aforesaid sub-section:
Provided that the tax shall be charged at the rate of which it would have been
ordinarily chargeable.
(2) The Commissioner may authorise any person appointed under section 4 to
assist him in investigating any case or points in a case at any stage and to
make a report thereon to the Commissioner or any prescribed authority in
respect of all or any of the assessments made in relation to the case in order
to prevent the evasion of tax. After considering the report of

Page: 93

investigating officer the Commissioner may proceed to take action under sub-section
(1) besides initiating any other action under this Act against the dealer concerned.”

5. From a bare reading of section 11 it is clear that this section provides for
assessment or reassessment of a dealer on fulfilment of conditions specified therein.
There are three stages of the proceedings under this section—(1) assumption of
jurisdiction, (2) initiation of proceedings for assessment, and (3) assessment. The
following conditions must be satisfied before the authority concerned can assume
jurisdiction under this section—
(1) It should be satisfied that—
(a) any dealer has been liable to pay tax under this Act in respect of any period
and has nevertheless failed to apply for registration and to make the return
required of him, or that
(b) sales of taxable goods
(i) has escaped assessment in any period, or
(ii) has been under-assessed, or
(iii) assessed at a lower rate, or
(iv) any deduction has been wrongly made therefrom.
(2) The satisfaction should be based upon information which has come into his
possession.
6. If the aforesaid conditions are satisfied, the authority concerned can assume
jurisdiction under section 11 and initiate the proceedings for assessment of the dealer
for the relevant period. The initiation of proceedings can be done by service on the
dealer concerned a notice containing all or any of the requirements which may be
included in a notice under sub-section (2) of section 8 of the Act. No form of notice
has been prescribed. What is required is that a notice containing all or any of the
requirements which may be included in a notice under sub-section (2) of section 8
should be served. Sub-section (2) of section 8 provides for a notice in the prescribed
form requiring a dealer to furnish a return of his turnover to the authority concerned.
Therefore, to initiate a proceeding under subsection (1) of section 11 for assessment
or reassessment of a dealer, a notice must be served on the dealer concerned within
the specified time requiring him to furnish return of his turnover for a particular period
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during which the evasion or escapement is alleged. Proceedings under section 11(1)
commence only with the service of such a notice. The time-limit for service of such
notice is eight years of the end of the relevant period. Service of a valid notice within
the specified time is thus a condition precedent for initiation of proceedings for
assessment or reassessment.
7. If the aforesaid conditions for assumption of jurisdiction and initiation of
proceedings are fulfilled, the authority concerned can proceed

Page: 94

to assess the dealer. The machinery for assessment has not been set out in section 11.
What has been provided is that once proceedings are validly initiated under this
section, assessment shall be made in accordance with the provisions of the Act dealing
with regular assessment. Section 9 is the relevant section which deals with
assessment. Thus an assessment, though made in pursuance of proceedings under
section 11(1) of the Act, shall be an assessment under section 9 of the Act and all the
requirements of the said section shall apply to such an assessment. Section 9 provides
for three kinds of assessment, namely, (i) assessment on the basis of the return, (ii)
assessment on the basis of evidence adduced by the dealer in pursuance of notice
issued to him under sub-section (2) of section 9, and (iii) best judgment assessment.
Thus, if a return is submitted by a dealer in response to the notice it may be accepted
by the authority concerned as correct and complete and he may be assessed on the
basis of such return. If such a return is not accepted, the dealer must be given an
opportunity of being heard as in the case of original assessment proceedings under
section 9(2) of the Act. If the assessee fails to comply with a notice requiring him to
furnish a return or to produce books of account or other documents under sub-section
(2) of section 9 of the Act, best judgment assessment can be made under section 11
(1) of the Act read with sub-section (4) of section 9.

8. From the foregoing discussions it is clear that in order to make an assessment

against a dealer under sub-section (1) of section 11 of the Act mere satisfaction of the
authority in regard to escapement of the turnover or the liability of the dealer and his
failure to register himself under the Act is not enough. That simply gives him power to
assume jurisdiction and initiate proceedings under sub-section (1) of section 11 by
service of a notice on such dealer requiring him to furnish a return of his turnover for a
particular period or periods. Once proceedings for assessment or reassessment are
initiated under sub-section (1) of section 11 by service of notice as indicated above, all
the relevant provisions of the Act, including the provisions for assessment, apply as
they apply to an original assessment. In other words, whether the dealer in pursuance
of notice under sub-section (1) of section 11, submits a return or not, the assessment
shall have to be made in the manner laid down in section 9 of the Act and in no other
manner.
9. In the instant case, the admitted position is that no notice contemplated by sub-
section (1) of section 11 was served on the dealer. The Superintendent of Taxes, on
being satisfied that the petitioner was liable to pay tax under section 3A(1) of the Act
on the value of the contract in the State of Tripura, straightway assessed the petitioner
in the purported exercise of powers under section 11(1) of the Act by-passing the
impugned order of assessment. Evidently, this cannot be done under the law.

Page: 95
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10. We are, therefore, constrained to hold that the condition precedent for
assessment under section 11 of the Act, namely, service of a notice under the said
section to the dealer concerned admittedly having not been fulfilled in the instant
case, the assessment is illegal and the same cannot be sustained.
11. We may now turn to the next submission of the learned counsel for the
petitioner that in the instant case evidently there being no intra-State sale in Tripura,
no tax could be levied on the value of goods used in execution of the works contract in
the State of Tripura only on the ground that the actual transfer of property used in the
works contract took place in the State of Tripura. Counsel relies in this connection on a
letter dated 3rd January, 1987, issued by the Executive Engineer, Micro Hydel
Investigation Division, Government of Tripura to the Commissioner of Taxes stating
the facts of the case, mode of supplies, etc., which goes to show that the sales in
question were inter-State sales. We have carefully considered the submission of the
learned counsel. The facts of the case are not in dispute. The submission of the
learned Government Advocate is that as in works contracts the transfer takes place
only when the goods are used in the work, the sale would be intra-State sale and not
inter-State sale. The submission of the Government Advocate, in other words, is that
article 286 of the Constitution and the provisions of the Central Act are not applicable
to deemed sales and purchases under clause (29A) of article 366 of the Constitution,
namely, transfer of property in execution of works contract. We find that this aspect of
the matter is no more res Integra in view of the decision of the Supreme Court in
Builders Association of India v. Union of India, [1989] 73 STC 370, wherein repelling
similar contention, it was declared that sales tax laws passed by the Legislatures of
States levying taxes on the transfer of property in goods (whether as goods or in some
other form) involved in execution of a works contract were subject to the restrictions
and conditions mentioned in each clause or sub-clause of article 286 of the
Constitution. In view of the aforesaid pronouncement of the Supreme Court, it is not
necessary to discuss this aspect of the matter. The principles for determining when a
sale takes place in the course of inter-State trade or commerce laid down in section 3
of the Central Sales Tax Act would apply equally to transfer of property in goods
involved in execution of works contract.
12. Section 3 of the Central Act lays down the principles for determining when a
sale or purchase of goods takes place in the course of inter-State trade or commerce.
Interpreting this section the Supreme Court has also in a number of cases held that if
the movement of goods from one State to another is the result of a covenant or an
incident of contract of sale then the sale is an inter-State sale. The inter-State
movement must be the result of a covenant, express or implied in the contract of sale
or an incident of the

Page: 96

contract. If the movement of goods is the result of contract and is an incident of an

agreement between the parties the transaction will remain a sale in the course of inter
-State trade no matter in which State the delivery of the goods is taken by the
purchaser. The passing of property in a particular State is not the relevant criteria for
determining whether a sale is an inter-State sale or not. Reference may be made in
this connection to the following observation of the Supreme Court in Oil India Ltd. v.
Superintendent of Taxes, [1975] 35 STC 445 at 449:
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“No matter in which State the property in the goods passes, a sale which
occasions ‘movement of goods from one State to another is a sale in the course of
inter-State trade’.”
13. In Oil and Natural Gas Commission v. State of Bihar, [1976] 38 STC 435 (at
page 439), repelling the contention of the State of Bihar that because delivery of crude
oil took place in Bihar it was not an inter-State sale, the Supreme Court observed:
“The delivery may be in Assam or in Bihar at Barauni but the movement of goods
is the result of contract and as an incident to the agreement between the
Commission and the Corporation.”
14. The sale was, therefore, held to be an inter-State sale. The same view was
reiterated in English Electric Company of India Ltd. v. Deputy Commercial Tax Officer,
[1976] 38 STC 475 (SC) (at page 479) in the following words:
“When the movement of goods from one State to another is an incident of the
contract it is a sale in the course of inter-State sale. It does not matter in which
State the property in the goods passes. What is decisive is whether the sale is one
which occasions the movement of goods from one State to another.”
15. In Union of India v. KG. Khosla and Co. Ltd., [1979] 43 STC 457, the Supreme
Court, after referring to a number of earlier decisions on the point, at page 464 of the
Report, observed:
“The decisions to which we have referred above show that in order that a sale
may be regarded as an inter-State sale, it is immaterial whether the property in the
goods passes in one State or another. The question as regards the nature of the
sale, that is, whether it is an inter-State sale or an intra-State sale, does not
depend upon the circumstances as to in which State the property in the goods
passes. It may pass in either State and yet the sale can be an inter-State sale.”
16. In view of the aforesaid decisions of the Supreme Court it is clear that the sale
in the instant case was an inter-State sale. The fact that the use of the materials was
made in a works contract in the State of Tripura did not in any

Page: 97

way affect the inter-State nature of the transaction. Evidently, the decision of the
Superintendent of Taxes holding the sale in the instant case as intrastate sale on the
ground that the property therein passed to the buyer in the State of Tripura goes
counter to the law laid down by the Supreme Court. As indicated above, the place of
delivery or the place where the property in the goods passes is not material for
determining whether the sale was an inter-State or intra-State sale. In view of the
foregoing discussion, this writ petition is allowed. The impugned order of assessment
and the notice of demand issued in pursuance thereof are quashed. In view of the
facts and circumstances of the case, we direct the respondents to pay a sum of Rs.
1,000 (one thousand) to the petitioner by way of cost.

17. Writ petition allowed.

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